Fulfilling The President's Green Dreams Through Private Competition

Solar-panel maker Solyndra, with its $535 million loan guarantee from taxpayers, was supposed to help usher in the era of clean energy and green jobs that President Obama has been promising. Instead, Solyndra went bankrupt and the FBI, Treasury Department and Congress are all investigating the company’s collapse and how it got its loan.

The Department of Energy program that made the disastrous loan to Solyndra was supposed to “accelerate the domestic commercial deployment of innovative and advanced clean energy technologies at a scale sufficient to contribute meaningfully to the achievement of our national clean energy objectives.” That obviously didn’t happen. And since the energy program handed out numerous other loans worth over $16 billion since 2009, it is likely we’ll be hearing about more “green” failures and further taxpayer losses.

The Obama administration should be examining a recent example that shows how to spur environmental innovation and progress – without putting any taxpayer money at risk. Last year, the X Prize Foundation and Wendy Schmidt partnered to create the Oil Cleanup X Challenge to “develop innovative, rapidly deployable, and highly efficient methods of capturing crude oil from the ocean surface.”

The Deep Water Horizon explosion and oil spill off the coast of Louisiana in 2010 demonstrated how little improvement in oil cleanup technology had been made since the Exxon Valdez spill in 1989. So the Oil Cleanup X Challenge’s goal was straightforward: whoever could create the most efficient method of removing oil from the surface of sea water, meeting a minimum oil recovery rate of 2,500 gallons per minute, would receive $1 million. Second- and third-place would get $300,000 and $100,000 respectively.

This $1.4 million call to action prompted over 350 teams to pre-register and the results, announced October 11, were impressive. Seven of the final 10 teams doubledthe standard oil recovery rate of 1,100 gallons per minute. The winner, privately-held Elastec/American Marine of Illinois produced an oil recovery rate of nearly 4,700 gallons a minute. In a single year, without any federal funding, the X Prize had identified a problem, incentivized a solution, and produced a more efficient and cheaper technology that more than quadrupled the industry standard for cleaning oil spills.

The primary difference between the Oil Cleanup X Challenge and the disastrous federal loan program that gave Solyndra over half a billion dollars is clear: The government program wasn’t based on results. It loaned money to the companies, like Solyndra, that had the most lobbying influence and best political connections. The oil cleanup contest awarded money for outcomes. It was an even playing field open to all comers. Companies didn’t compete through grant applications or lobbying. The best products won.

Some governments have started recognizing the merits of prizes over subsidies. In 2009, the governments of the United Kingdom, Italy, Canada, Russia and Norway, together with the Bill and Melinda Gates Foundation committed $1.5 billion to buy vaccines for diseases that primarily affect people in poorer countries. The first company to develop an effective vaccine is rewarded with a prize in the form of large scale purchases of its vaccine. The push for this prize-like system came after conventional government subsidies for vaccine research failed.

Government shouldn’t be in the business of selecting winners and losers in business at all. But if it is going to attempt to drive “green” innovation, it should use prizes to reward actual results and minimize corruption and corporate welfare. Prizes could be used to increase energy efficiency, cost-effectively convert solar energy to electricity, waste reduction efforts, and drive advancements on any number of environmental issues. The type of crony capitalism that led taxpayers to waste over half-a-billion dollars on Solyndra needs to be eliminated. And rewarding proven success through prizes is a significantly better policy than subsidizing failure.

Julian Morris is vice president of research and Adam Peshek is a research associate at Reason Foundation. This column first appeared on Forbes.com.

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Alfonso said...
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The Pickens PlanIn 2008, during the psieedrntial election campaign, I saw a commercial about the Pickens Plan at least a dozen times. This was put forward by T. Boone Pickens, a colorful oilman. He was about 83 at the time. His plan consisted of changing vehicles to natural gas power, beginning with big trucks. He also planned to supplement existing electric power generators with windmills, leading toward the point where essentially no oil would be needed to either run vehicles or generate electric power. He stated that this would decrease or eliminate US dependence on oil from the mideast. The logic of this is inescapable because much of the money that the US spends to bring oil from the mideast goes to unfriendly or outright hostile countries, and much of the rest comes from countries that are run by people who are extremely unpopular with their citizens and only kept in power by US support. The Pickens plan gathered a lot of public support because it was so logical and so well presented. Pickens suggested placing windmills on the Great Plains from Texas to Manitoba, an area where the wind blows a high percentage of the time anyway. It was essential then, and is more essential now, to decrease US dependence on oil from the mideast and especially from Saudi Arabia. The Saudis have a lot of problems. The royal family belongs to one branch of Islam and most of their subjects to a different one. They supported Iraq in its long war with Iran to decrease Iranian influence with their subjects. This buffer zone has been lost because of the idiotic US invasion of Iraq. The Arabian oil fields are being depleted. It is generally believed that they have only a small fraction of the oil reserves that they claim, and production is falling quite rapidly. The revolts against despotic rule that swept North Africa in early 2011 were observed with great interest in Saudi Arabia. The rulers saw the US throw their old ally Hosni Mubarak overboard and wondered if the US would throw them overboard just as easily. Their subjects saw the same events and wondered the same thing.Pickens put his money where his mouth was, as is his custom. He lost money on the windmills and I believe that he had to pay cancellation charges on most of them. One problem was that there are very few electric power lines out on the plains, so the cost of connecting to the power lines was more than expected. Another problem was that the electric generators require a lot of rare earth elements, which are expensive and becoming more expensive by the day. Some of them are priced several times higher than they were just a few months ago.Pickens had also invested in companies that produce truck engines that run on natural gas. As nearly as I know these investments have worked out well for him They have every appearance of working well for a long time into the future as well. The cost of natural gas has gone down a lot in the last couple of years, largely due to horizontal drilling and fracking, which have made it not only possible but economical to produce gas which had previously been impossible to produce. Thousands of trucks have been converted and many new trucks come with natural gas motors already installed in the factory. I heard very recently that natural gas vehicles are allowed onto the zero emissions lanes on some California highways. They are not really zero emission but their emissions are about half as much as gasoline powered cars. According to John Thomas, the Mad Hedge Fund Trader, they are becoming common there.UPS, Ryder, and Waste Management have changed parts of their trucking fleets to run on natural gas. After thousands of vehicles were changed to run on natural gas simply because of the expected economy of operation, Congress discovered the Pickens Plan, and has come up with a plan to pay 80% of the cost of conversions, with a maximum of $64,000 for a large truck. If you have to bribe people to do something that will save them money they are in a very sad state. The reason for this action seems to be that they want to say that they are doing something, and in Washington-speak the only way they can really do this is to throw borrowed money at it.The renewed oil and gas production activity has done wonders for the economy of North Dakota, which currently has the lowest unemployment rate in the US. It looks now like the Pickens Plan, along with horizontal drilling and fracking, will be the economic salvation of the US, even if the windmill half of the plan does not work. It will make a drastic decrease in the foreign trade deficit. It will also put thousands of people back to work changing vehicles over to run on natural gas. Paying out billions of dollars to American workers instead of to mideast dictators will do more for the US economy than anything that the mental pygmies in Washington could ever do. Pickens is a real rarity. He is now somewhat of a celebrity. When I open my Yahoo email I see an ad for a group called Street Authority. The ad is for their stock advisory service. It includes small photos of Bill Gates, Warren Buffett, John Kerry, George Soros, someone I can’t identify, and Boone Pickens. About 20 years ago I read a book called Boone, which is apparently no longer in print. As one example of the way he works, they stated that while he was living and working in Calgary, Canada, and his wife was living there with him he decided that it was time to get a divorce. He consulted a local lawyer, who told him that under the then-current Alberta law his wife would get a much smaller settlement than she would if he waited until they were back in the US. Boone declared that they had got married in the US so it would be unfair to her to ask her to take the smaller settlement. He waited until they were back in the US and then paid the larger amount because he believed that it was the fair and honorable thing to do. Not many husbands would do that!